Renzo’s liquid restaking token (LRT), ezETH, skilled a major depegging occasion that liquidated tens of millions from “loopers” utilizing the token as collateral on leverage protocols like Gearbox.
In accordance with knowledge from CoinMarketCap, the digital asset’s worth plunged to a low of $2,755 earlier than recovering to its present degree of $3,178 as of press time.
Notably, decentralized alternate Uniswap witnessed a extra extreme depegging of ezETH, with its worth dropping to as little as $700, attributed to liquidity challenges.
Renzo is a outstanding liquid restaking protocol, with over $3 billion value of property locked on its platform, in response to DeFillama knowledge.
Liquidation galore
The DeFi protocol Gearbox confirmed that the depeg led to the liquidation of a number of Credit score Accounts.
The protocol’s founder, 0xmikko, offered extra insights into the state of affairs, saying:
“115 Credit score Accounts have been liquidated, 10,650 ezETH have been bought on Balancer pool. Liquidation losses of 25.77 ETH have been mechanically coated by inside Gearbox reserve fund, no motion wanted.”
Concurrently, Cork Protocol, one other DeFi platform, defined that the liquidations brought on a considerable sell-off of ezETH beforehand held as collateral. This flood of provide overwhelmed the market, driving the value of ezETH right down to 0.2.
Curiously, these liquidations occurred alongside the discharge of Renzo’s native REZ token, sparking the emergence of Renzo-related phishing scams on social platform X (previously Twitter).
Web3 safety agency Rip-off Sniffer recognized two cases the place Renzo customers cumulatively misplaced greater than $500,000 to a malicious allow signature rip-off.
Amidst this market turmoil, dealer czsamsunsb.eth capitalized on the state of affairs, investing 4,099 ETH to amass 4,221 ezETH. This transfer proved profitable, because the dealer earned a exceptional revenue of 121.65 ETH, per Lookonchain’s findings.
What does this imply for LRTs?
Crypto analyst Tommy defined that the depegging represents a major threat throughout all LRTs, even with withdrawal choices enabled. He famous {that a} depegging occasion in a decentralized alternate (DEX) pool might happen because of momentary imbalances.
Equally, DeFi researcher Ignas warned of potential exacerbation in LRT depegging, primarily if Eigenlayer, the platform the place these tokens function, introduces two key upgrades of slashing and permissionless AVS.
Ignas defined that an AVS malfunction resulting in slashing might scale back restaked ETH balances by a hypothetical 5%. Whereas this might sound manageable for direct Eigenlayer stakers, it might set off substantial disruption to LRT pegs because of liquidity issues and subsequent panic-driven mass withdrawals.
He famous that whereas costs could stabilize post-slash, the interim interval might witness harsh liquidations, and the danger of slashing grows as extra AVSes come on-line.
Consequently, he added:
“It’s all FUD proper now as slashing gained’t derail Eigenlayer however LRTs 1) with low liquidity 2) and are extensively accepted as collateral could cause disproportional injury.”
